Biden’s DOL Issues New Rule Making It More Difficult for Businesses to Classify Individuals as Independent Contractors for Wage and Hour Law Purposes

A recent Opinion Letter from the Department of Labor, “DOL,” serves as a good reminder that incentive bonus payment usually must be included in an employee’s regular rate used to calculate overtime. The Opinion Letter dealt with an employer in the waste industry that paid drivers a bonus every pay period if certain safety and performance criteria (punctuality, attendance, and consistency in completing daily safety tasks) were met. Not surprisingly, the DOL found that the bonus amounts should be included in the regular rate of pay for overtime calculation purposes, because the payments were incentives and Discretionary Bonuses. Discretionary bonuses may be excluded from the regular rate of pay if: (1) the fact and amount of the payment are determined at the SOLE Discretion of the employer; (2) with the determination being made at or near the time of the period when the work was performed; and the payment must not be made pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly. The payments in this case were made pursuant to a predetermined plan to incentivize work performance. A true Discretionary bonus which can be excluded from overtime is quite unusual. Accordingly, most bonus payments must be included in overtime calculations.

As employers will recall, a federal court struck down the Fair Trade Commission’s (FTC) proposed ban on employee non-compete agreements over a year ago. The FTC has since abandoned its effort to enforce a rule completely banning such agreements. However, in September, the FTC surprised some by announcing that it intends to regulate the use of employee non-competes on a case-by-case basis. It seems that the FTC will consider whether the restrictions are “reasonable” by determining whether they are no greater than is necessary to protect the employer’s legitimate interests, balancing those interests against the hardship to the employee and public. Some factors that are likely to be considered are: The size of the company, both in terms of employees and business; Whether the employer requires non-competes of all employees, or only those with job duties that might justify their use to protect the employer’s interests; The scope of the geographic and time limitations contained in the non-competes. This “reasonableness” determination is very similar to the analysis that many state courts use in determining whether to enforce a non-compete. The FTC has announced its intention to put particular focus on employers in the healthcare space. However, all employers utilizing non-compete agreements should review the restrictions contained therein in an effort to determine that they appear reasonable under the above criteria.

A lawsuit was filed in 2023 in federal court in CA by a man alleging that he applied for many jobs at companies that utilize Workday’s platform, and that he was rejected for all, with many rejection emails coming within an hour of his application

The federal law enacted last week provides some tax relief for employees who work overtime, and for those who receive tips. A summary is set forth below: Overtime Deduction An employee must receive OT pay as defined by the Fair Labor Standards Act (FLSA) (pay for hours worked beyond 40 in a workweek at a premium rate), and the deduction only applies to the premium portion of OT pay (the amount above the regular hourly rate). The deduction applies only to overtime compensation that is “required” under the FLSA. The deduction does not apply to overtime premiums that are not “required” by the FLSA, but instead are paid pursuant to contract (including a collective bargaining agreement), company policy, or because they are required under state law only. This is an above-the-line deduction, with the maximum deduction being $12,500 per year (up to $25,000 if married filing jointly). To be eligible for the full deduction, employees must earn $150,000 or less. Employers must include the total amount of qualified overtime compensation as a separate line item on the Form W-2. This will require employers to keep a distinct record of the overtime premium compensation that is both (a) required under the FLSA and (b) in excess of the regular rate. Tips Deduction To qualify for the deduction, the tips must be received by an individual engaged in an occupation that customarily and regularly received tips on or before Dec. 31, 2024, such as servers, bartenders, hotel staff, hairstylists, etc. To be considered a “qualified tip,” the amount must: (a) be paid voluntarily without any consequence in the event of nonpayment; (b) not be the subject of negotiation; and (c) be determined by the payor. Thus, for example, a mandatory service charge imposed by the employer for a banquet will not qualify for the deduction, and neither will a required gratuity that a restaurant adds automatically to a bill for large parties. Failing to make this distinction may lead employees to claim deductions to which they are not entitled. This is also an above-the-line deduction, with a cap of $25,000 per year. To be eligible for the full deduction, employees must earn $150,000 or less. The act requires employers to include on Form W-2 the total amount of cash tips reported by the employee, as well as the employee’s qualifying occupation. For 2025, the act authorizes the reporting party to “approximate” the amount designated as cash tips pursuant to a “reasonable method” to be specified in a forthcoming regulation by the Treasury secretary.